Tuesday 28 March 2017 05:42 PM
Rabobank NZ annual profit falls 14% on higher provisioning for bad dairy debt
By Paul McBeth
March 28 (BusinessDesk) - Rabobank New Zealand posted a 14 percent decline in annual profit last year as the rural lending specialist boosted its provisioning for bad debts in the face of the dairy slowdown.
Net profit fell to $89.5 million in calendar 2016 from $104 million a year earlier, the Wellington-based lender said in a statement. The decline in profit was largely due to the bank booking $15.1 million in impairment charges on bad debt. In 2015 Rabobank booked a $5.6 million gain, writing back the value on impairments. Net interest income edged up 2.6 percent to $251.3 million, outpacing a 2.2 percent increase in the size of Rabobank's NZ net loan book to $9.65 billion.
"Given the challenging dairy industry conditions experienced in recent seasons, it was prudent to increase provisions to $15.1 million in 2016," chief executive Darryl Johnson said. "We are comfortable with this level of growth which illustrates our consistent approach to supporting operators in the food and agribusiness sector, whilst at the same time maintaining high credit standards."
Dairy prices started recovering through the second half of 2016 after an earlier slump stretched the farmers' balance sheets as they faced yet another season of operating at a loss. As global supply tapered off and Chinese demand picked up, those forces turned around and milk processors are currently forecasting the farmgate payout to be in the black for farmers this season.
Rabobank's Johnson today said the outlook for most of New Zealand's key agricultural sectors was positive for this year and he expected business growth to continue through 2017.
New Zealand lenders have been struggling to attract depositors over the past year as record low interest rates reduce the appeal of term deposits, meaning banks have been forced to tap more expensive wholesale funding lines overseas. However, Rabobank increased deposits 8.5 percent to $4.14 billion through 2016.
The bank's total capital ratio stayed well above the 8 percent regulated minimum at 13.57 percent, though were down from 13.72 percent a year earlier.
Rabobank New Zealand didn't pay a dividend to its parent, instead retaining earnings. However, management fees to related parties rose 11 percent to $52.2 million.